March 25, 2019
Why 2018 Saw a Housing Slump
One of the surprises 2018 brought to the US economy was the relative softness of the housing market, given the relatively high pay people were earning and the entry of the Millennial generation (at last) into what is generally the peak age-range for home-buying. It was despite these factors that the housing market became a drag on the economy rather than a source of fuel, which has more often been the case historically. The question is: why did we see a slump, given these otherwise auspicious markers of economic health?
It appears to be a matter of disparity of income growth overall to growth in housing prices, which a whole generation is seeing through the lens of the crisis that came in homeownership right as they were reaching the age of employability.
Moreover, homeowners who in the course of last year’s overheated housing market in some sectors thought they would get a great deal of money for their homes are now coming to grips with the fact that they likely won’t be able to fetch such an attractive price at market, and are therefore backing off from putting those homes to market. Top that off with rising interest rates, and you’ve got several sectors of market players who are being weighed upon by the loss aversion principle: for the first set, the loss in what they had perceived they might have earned from a house sale; for the second set, the loss of historically low interest rates, which translates into more money paid for the same property than they might have been able to manage before.
This has resulted in people staying in starter homes and mid-level homes rather than moving up, as they once might have. Which has in turn resulted in a tight inventory. Which was not helped by the fact that construction companies were faced with rising prices for materials because of tariffs and other economic factors, which has led them to slow their productivity significantly.
Nonetheless, mortgage rates remain low, and if those interested in either moving up the housing ladder or getting into starter homes can set their loss-aversion mindsets aside, they might realize that it is still a good time to make that move.
Here at Topouzis & Associates, P.C., we do extensive title search work on every form of residential property. Contact us if you have any questions or if you would like our considerable experience in dealing with the particularities of the real estate system.